An insurance defense law firm was sued by the bankruptcy trustee for a former client following an $8,000,000 personal injury verdict in excess of the minimum policy limits ($15,000) available to the client. The trustee alleged breach of fiduciary duty, claiming that the attorneys that had been retained to represent the negligent driver by the insurer had failed to advise the driver of potential bad faith claims against the insurer for failure to settle. The theory of recovery was summarized as follows:

In sum, the Trustee claims that [the law firm] is liable to [the insured]’s bankruptcy estate for the unpaid portion of [the claimant]’s judgment because the alleged breach of fiduciary duties caused [the insured] to incur the $8,000,000 judgment with interest, which resulted in the involuntary bankruptcy and the subsequent settlement of the bad-faith claim against [the insurer] for an amount that was inadequate to pay the full amount owed to Moreno on the judgment.

The Court of Appeals agreed with the trail court that this was simply too speculative.

Only by speculation or conjecture could a trier of fact conclude that, if [the law firm] had informed [the insured] prior to trial that he had a potential bad-faith claim against [the insurer] in the event of a judgment in excess of policy limits, [the insured] would have hired an independent attorney, who would have prevented the excess judgment by persuading [the insurer] to settle the case for the $2,000,000 demanded by [the claimant] before [the law firm] was hired.

Elizabeth O'Neill - winner

Thus, the Court of Appeals held that even if a breach had occurred, the alleged damages were too speculative to permit recovery. The Court of Appeals further held that given the absence of any actual damages, the law firm was entitled to summary judgment on claims for nominal and remote damages, punitive damages and attorney fees.

This case was an important holding for insurance defense counsel, especially those handling minimum limit cases where the threat of excess verdicts and aggressive bad faith claims is commonplace. More claims have been made against the insurance defense counsel in these case despite the fact that the alleged bad faith claim, assuming it has any merit, arose against the insurer prior to the defense counsel even being hired in most cases.
The law firm in this case was represented by Hawkins Parnell Thackston & Young, LLP partners H. Lane Young II and M. Elizabeth O’Neill, and Robert Gilbreath assisted on the appeal.